• SPX500_m hits new 2023 high last Friday

• Stock index set to be injected with fresh volatility

• Keep eye on US CPI and Fed decision

• SPX500_m bullish on D1 chart but RSI signals overbought

• Key levels of interest at 4640, 4600 and 4545

After hitting a new 2023 high last Friday, the SPX500_m could be injected with fresh volatility this week due to a series of high-risk events.

US equity bulls remain in the driver’s seat with the SPX500_m bagging its sixth week of gains after the strong US jobs data boosted hopes around the US economy avoiding a recession. The stock Index has also drawn strength from growing bets over the Federal Reserve cutting interest rates next year amid slowing inflation.

Taking a brief peek at the technicals, prices are trending higher on the daily charts. Despite the recent breakout above 4600, it may be worth keeping an eye on the range with support found at 4545.

The next few days could be wild for the SPX500_m and here are 3 reasons why:

       1. US data dump

It’s a big week for the US economy thanks to top-tier economic reports including the highly anticipated US CPI report on Tuesday.

This crucial inflation report along with the latest retail sales and industrial production among others could influence bets around what the Fed will do beyond 2023. As highlighted in our week ahead report, headline inflation is expected to have cooled further due to falling energy prices, while the annual core inflation to remain unchanged.

Given how the S&P 500 Index has a handful of tech stocks that remain sensitive to interest rate expectations, the incoming US inflation figures have the ability to rock the index.

• The SPX500_m could pull away from the 2023 high if the inflation report exceeds market forecasts.
• Should the inflation numbers print below expectations, this could push the index higher as Fed rate cut bets jump.

       2. Fed rate decision

Markets widely expect the Federal Reserve to leave rates unchanged on Wednesday, so the focus falls on the updated economic projections and dot plots for fresh clarity on its next move.

• The SPX500_m could push higher if the doves dominate the scene with the Fed signalling cuts in 2024.
• If the Fed pushes back hopes for rate cuts and reiterates the higher for longer mantra, this may pull the SPX500_m lower.

Note: Looking beyond US data and the Fed decision, it may be worth keeping an eye on the “Triple witching”. 

US markets may see a sudden jump in volumes on Friday as Futures and Options contracts on Stocks and Indices expire in what is called “Triple witching”. This happens once a quarter and has the potential to cause some market volatility.

       3. Technical forces

Regarding the technical picture, prices are firmly bullish on the daily charts. There have been consistently higher highs and higher lows while prices are trading above the 50, 100 and 200-day SMA. However, the Relative Strength Index (RSI) remains around 70 suggesting that prices are heavily overbought. A technical throwback could be on the table before the index pushes higher.

• Should prices stay above the 4600 level, this may open a path towards the 4640 level – the highest level touched in March 2022.
• Sustained below 4600 may trigger a selloff back towards 4525
• Should 4525 prove to be unreliable support, a decline back towards 4500 and 4470 could be on the cards.